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Do Hospitals Make or Lose Money on Medicare?

Ken Perez

Steven Brill’s “Bitter Pill,” the cover article of the March 4, 2013, issue of TIME and the longest in the history of the publication, contends that Medicare adequately reimburses hospitals. Brill writes, “Medicare takes seriously the notion that nonprofit hospitals should be paid for all their costs but actually be nonprofit after their calculation. Thus, under the law, Medicare is supposed to reimburse hospitals for any given service, factoring in not only direct costs but also allocated expenses such as overhead, capital expenses, executive salaries, insurance, differences in regional costs of living, and even the education of medical students.” Given all those generous considerations, one would think that every hospital would at least be breaking even on their Medicare business.

But that is not the conclusion of the Medicare Payment Advisory Commission (MedPAC), the small, nonpartisan federal agency charged with evaluating Medicare payment issues and making recommendations to Congress. Not long after Brill’s article appeared in TIME, MedPAC issued its annual March 2013 Report to the Congress: Medicare Payment Policy, a detailed, 435-page document. The report concludes that the overall Medicare margin for hospitals declined from –4.5 percent in 2010 to –5.8 percent in 2011. Furthermore, MedPAC projects the overall Medicare margin in 2013 will be –6 percent.

The report also notes that although Medicare payments are currently less than costs for the average hospital, it is possible for some hospitals to make money on Medicare: The median efficient hospital generated a positive 2 percent Medicare margin in 2011.

MedPAC’s report offers a clear and accurate picture of the impact of Medicare on the nation’s healthcare providers. The national media would do the public a service by spotlighting the report’s findings to the same extent that it has given play to the assertions of Brill’s article.

Steven Brill’s “Bitter Pill,” the cover article of the March 4, 2013, issue of TIME and the longest in the history of the publication, contends that Medicare adequately reimburses hospitals. Brill writes, “Medicare takes seriously the notion that nonprofit hospitals should be paid for all their costs but actually be nonprofit after their calculation. Thus, under the law, Medicare is supposed to reimburse hospitals for any given service, factoring in not only direct costs but also allocated expenses such as overhead, capital expenses, executive salaries, insurance, differences in regional costs of living, and even the education of medical students.” Given all those generous considerations, one would think that every hospital would at least be breaking even on their Medicare business.

But that is not the conclusion of the Medicare Payment Advisory Commission (MedPAC), the small, nonpartisan federal agency charged with evaluating Medicare payment issues and making recommendations to Congress. Not long after Brill’s article appeared in TIME, MedPAC issued its annual March 2013 Report to the Congress: Medicare Payment Policy, a detailed, 435-page document. The report concludes that the overall Medicare margin for hospitals declined from –4.5 percent in 2010 to –5.8 percent in 2011. Furthermore, MedPAC projects the overall Medicare margin in 2013 will be –6 percent.

The report also notes that although Medicare payments are currently less than costs for the average hospital, it is possible for some hospitals to make money on Medicare: The median efficient hospital generated a positive 2 percent Medicare margin in 2011.

MedPAC’s report offers a clear and accurate picture of the impact of Medicare on the nation’s healthcare providers. The national media would do the public a service by spotlighting the report’s findings to the same extent that it has given play to the assertions of Brill’s article.

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